Customer churn: Why you’re losing customers and how to win them back

Editorial Team

5 min read
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Customer churn is a threat to your revenue that can sneak up on you if you’re not keeping an eye out. Considering repeat customers tend to be worth more revenue than new customers, managing customer attrition is one of the most important things you can do for your business.

On average, about 80% of revenue comes from the top 20% of customers. Unfortunately, customer attrition (or customer churn) is a real problem that can be easily missed, especially if you’re busy trying to acquire new customers. So, maintaining a loyal customer base is a must if you want a healthy, robust business. 

Read on to learn how to recognize the signs of customer churn, analyze the root causes, and fix any issues so that you can retain old and new customers

Recognizing and predicting the signs of customer churn

Often, churn can go unnoticed for a while. If you aren’t actively looking for it, you might not notice that you haven’t seen your VIPs lately. Or, you might not make the connection between a slight drop in sales and the number of new versus old faces in your shop. So, how do you recognize the signs?

The answer is data. If one of your top priorities is attracting new customers (as it is for most small business owners), make sure you’ve also got your eye on attrition and retention. In fact, the churn rate vs retention rate should be a prime focus as part of your business strategy. You can track this data through a CRM (customer relationship management) program or directly through your point-of-sale system. For instance, the Customer section on the Clover POS dashboard provides information on each of your customers and their spending habits. 

Another important metric to follow is your subscriber retention rate. Subscriptions are a prime way to retain customers, from gym memberships to flower deliveries. So, you’ll want to stay on top of these numbers to make sure they’re holding steady. This will also help you to see the bigger picture in terms of customer loyalty. For instance, if your subscriptions are remaining strong but you are losing in-store customers, that tells you that it’s not your products or services that are lacking, but rather something about the in-store experience. 

How to calculate your customer churn rate

If you don’t have a program that automatically calculates your customer churn rate, you can calculate it yourself. You just need some primary customer data, namely the number of customers you had at the beginning of a period of time (either the month or the year, for example), and the number of customers you lost during that same period. Divide the number of lost customers by the number of customers you started with, and then multiply that number by 100. 

For example, say your business started with 350 customers and then lost 25. Calculating customer churn rate would look like this: 

25 ÷ 350 = 0.071

0.071 x 100  = 7.1

Your customer churn rate is 7.1%. 

While business churn rates vary widely depending on the market and your particular industry, you’ll want to define benchmarks that make sense for your business. Some good benchmarks to follow include churn rates by industry and by revenue per customer. You’ll also want to keep an eye on churn patterns in your business over a larger period of time, watching for any changes in your usual customer activity. 

Analyzing root causes for unexpected customer churn

Once you’ve determined that you’re losing more customers than you’d like, it’s critical that you get to the root of the problem. Customer churn can result from various issues, like:

  • Poor customer service
  • Insufficient customer onboarding
  • Lack of consistent customer engagement 
  • Wrong customer focus for your business
  • Loss of customers to competitors 

Poor customer service typically tops the list of reasons customers leave a business–for both in-person and online experiences. Issues could include long response wait times, automated rather than personal online support, and not resolving customers’ problems to their satisfaction.

Insufficient onboarding is another commonly overlooked issue leading to customer attrition. This is the period of time when a customer is learning to use your product or service. Is it easy to use, or is there a steep learning curve? Are there clear instructions, or is it a test of mental stamina? Onboarding is extremely important because it can determine whether a customer will adopt your product or service into their regular routine or forget about it entirely. 

Finally, competition from other businesses–big or small–is an on-going reality for entrepreneurs. To get a handle on who or what your competition is, conduct a competitive analysis–review the pricing and features offered and the technical advancements underway at businesses like yours. Sometimes, customers leave simply because they find a better fitting product or service. If something as simple as pricing is what’s pulling them to your competition, consider making adjustments to pricing to help retain customers–and potentially increase revenue in the long term.

How to reduce customer churn

One of the most tried-and-true ways to reduce customer churn and build customer loyalty is through ongoing customer engagement. While your in-person customer service is very important, incorporating digital communication that is personal, ongoing, exclusive, and efficient can go a long way in nurturing customer relationships and retaining shoppers. 

Clover POS simplifies and organizes the process of nurturing customer relationships with its built-in Customer Engagement suite. With this suite, you can chat with customers directly, offer promotions via text, email, or social media, show appreciation with exclusive rewards, and keep tabs on your customers’ preferences.

With an ongoing, personalized, and efficient customer engagement program, you can then turn your attention to alleviating any other possible causes for customer churn–from improving customer service and creating easy onboarding to attracting the right customers through targeted marketing. Clover can help you keep your customers satisfied and coming back for more. 

Get started with a Clover POS system today to help deepen customer relationships and boost business.

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